GigaMedia Reports Second-Quarter 2011 Financial Results

Second-quarter 2011 core net loss was $1.7 million; core basic and fully-diluted loss per share were each $0.03.(1)

"FunTown delivered solid year-over-year growth in Taiwan and Hong Kong, with revenues up 11 percent, driven by continued strong contributions from existing games and the addition of new MMOs to our operations," stated GigaMedia Chief Executive Officer Yichin Lee. "We have successfully broadened and diversified our revenue base and forecast continued strong results and sustained profitability in Taiwan and Hong Kong going forward."

"IAHGames, our new operations in Southeast Asia, continued to underperform, but results do not reflect the full impact of an ongoing internal restructuring focused on the realization of major operating efficiencies," stated CEO Yichin Lee. "We target profitability in Southeast Asia by yearend on the back of ongoing cost cutting and increased focus on key markets."

"We look forward to a busy second half of 2011 with the launch of 4Story this month in Taiwan followed by several major game tournaments and new mobile game launches - all part of plans to expand our platform and extend our offerings," stated CEO Yichin Lee. "Finally, we are committed to realizing gains and cashing up our balance sheet later this year via plans to dispose of certain minority investments that have substantially increased in value."

          Core net loss and core basic and fully-diluted loss per share
          are provided as a supplement to results provided in accordance
          with U.S. generally accepted accounting principles ("GAAP").
    (1)   See, "Use of Non-GAAP Measures," for more details.

Overview

-- Taiwan: the new MMO game A.V.A. continued making solid contributions,

driving an 11 percent year-over-year increase in FunTown's revenues; new

Web-based and iPad MahJong products successfully launched - initial

steps in strategic platform extension to mobile and Web-based games; new

tournament competitions launched and several scheduled for the

second-half of 2011, representing significant progress in expanding

GigaMedia's game tournament platform.

-- Southeast Asia: restructuring underway to increase focus on Vietnam,

Thailand and Indonesia and enhance efficiencies; FIFA Online 2 grew 36

percent Q-o-Q, driven by performance in Thailand and Vietnam - fully

localized version launched in Indonesia in July.

-- Investments ongoing in new China platform while continuing to pursue all

means to resolve the dispute in connection with the China-based business

T2CN.

-- Corporate update: 1) share buyback continues to return value to

shareholders; under the board-approved share buyback plan, as of August

12, 2011 GigaMedia has repurchased a total of 2.5 million shares; 2)

management committed to the disposal of certain minority investments in

2H11 to realize gains and crystallize value on GigaMedia's balance

sheet; and 3) company positioned for upside potential from remaining 40

percent interest in Mangas Everest; recent losses reflect ongoing

investments.

Consolidated Financial Results

GigaMedia Limited is a major provider of online entertainment software and services, developing and operating a suite of online games in Asia covering the regions of Greater China and Southeast Asia. GigaMedia also retains a 40 percent equity interest in Mangas Everest ("Everest Gaming").

               GIGAMEDIA 2Q11 CONSOLIDATED FINANCIAL RESULTS

    (unaudited,
     all figures
     in US$
     thousands,
     except per
     share                             Change
     amounts)         2Q11     2Q10      (%)   2Q11     1Q11    Change (%)
    Revenues
     (A)               8,797   10,864      -19   8,797   10,422          -16
    Gross
     Profit (A)        4,682    7,243      -35   4,682    5,761          -19
    Loss from
     Operations
     (A)               3,633   11,756       NA   3,633    2,684           NA
    Income
     (Loss)
     from
     Continuing
     Operations
     (A)              (7,089)  52,568       NA  (7,089)  (5,199)          NA
    Net Income
     (Loss)
     Attributable
     to
     GigaMedia        (6,959)  52,549       NA  (6,959)  (5,155)          NA
    Net Income
     (Loss)
     Per Share,
     Diluted           (0.12)    0.87       NA   (0.12)   (0.09)          NA
    Core Loss
     from
     Operations(A)(B) (2,761)  (4,826)      NA  (2,761)  (1,906)          NA
    Core Net
     Loss (A)
     (B)              (1,720)  (5,400)      NA  (1,720)    (975)          NA
    Core Net
     Loss Per
     Share,
     Diluted
     (A) (B)           (0.03)   (0.10)      NA   (0.03)   (0.02)          NA
    EBITDA(C)         (5,896)  59,843       NA  (5,896)  (3,976)          NA
    Cash, Cash
     Equivalents,
     Restricted
     Cash, and
     Marketable
     Securities-
     Current          70,663  116,515      -39  70,663   72,924           -3

        Excludes results from discontinued operations; 2Q11 and 1Q11 figures
        exclude the results of T2CN operations and include the results of
        IAHGames. (See, "Deconsolidation of T2CN operations" and "Quarterly
    (A) figures," for more details.)
        Core loss from operations, core net loss and core net loss per share
        exclude results from discontinued operations, financial results
        related to our gambling software business, non-cash share-based
        compensation expenses, bad debt expenses for loans receivable and
        certain non-cash or one-time items. (See, "Use of Non-GAAP
    (B) Measures," for more details.)
        EBITDA (earnings before interest, taxes, depreciation, and
        amortization) is provided as a supplement to results provided in
        accordance with U.S. generally accepted accounting principles
    (C) ("GAAP"). (See, "Use of Non-GAAP Measures," for more details.)

Consolidated revenues for the second quarter of 2011 decreased to $8.8 million from $10.9 million in the same period of 2010 and from $10.4 million in the first quarter of 2011. Results reflected lower contributions from GigaMedia's Asian online games business.

Revenues in the company's Asian online games business in the second quarter decreased 19 percent year-over-year and 16 percent compared with the first quarter. The decrease from the prior year was mainly attributable to deconsolidation of T2CN, which more than offset growth in FunTown and new contributions from IAHGames. (See "Deconsolidation of T2CN operations" for further details.) The decline from the first quarter of 2011 reflected revenue decreases in FunTown and IAHGames.

Second-quarter revenues from FunTown, our operations in Taiwan and Hong Kong, increased to $6.5 million from $5.8 million a year ago and were down from $7.4 million in the first quarter of 2011. The year-over-year increase was largely attributable to new contributions from the game A.V.A.; Tales Runner also contributed to the growth. The quarterly sequential decrease reflected traditional seasonality, with online game revenues declining following a peak during Chinese New Year in the first quarter. Average monthly active paying accounts for all games in Taiwan and Hong Kong decreased to approximately 76,000 during the second quarter, down 10 percent quarter-over-quarter. Average monthly revenue per active paying account was approximately $28.54 during the second quarter of 2011, down 2 percent from the previous quarter. Second-quarter peak concurrent users were approximately 41,000, down 8 percent from the first quarter. FunTown plans to launch a new MMO game 4Story in late August, and is continuing to expand its mobile offerings with a new iPhone variation of its popular MahJong product scheduled for the third quarter.

Second-quarter revenues from IAHGames, our operations in Southeast Asia, were $2.3 million, down from $3.0 million in the first quarter of 2011. The decrease largely resulted from a decline in contributions from Dragonica Online reflecting a lack of new game content in the current quarter. The decline also resulted from a planned decrease in game box sales. These declines more than offset growth of FIFA Online 2 in the key markets of Thailand and Vietnam. Online game revenues in the second quarter were led by contributions from FIFA Online 2, Dragonica Online and Granado Espada. In line with management's plans to increase focus on key regional markets, at the end of July GigaMedia launched a new fully localized offering of FIFA Online 2 in Indonesia. The company plans to gradually increase marketing in Indonesia going forward.

Consolidated gross profit and gross profit for the Asian online games business for the second quarter decreased to $4.7 million from $7.2 million in 2010 and from $5.8 million in the first quarter of 2011, with the year-over-year decrease primarily resulting from the period revenue decrease and resulting lower gross margin, and the quarterly sequential decrease reflecting the aforementioned revenue decrease in the Asian online games business in the second quarter of 2011. Second-quarter 2011 consolidated gross profit margin and gross profit margin in the Asian online games business decreased to 53.2 percent from 66.7 percent in the same period in the prior year, and decreased from 55.3 percent in the first quarter of 2011 with the year-over-year decrease primarily reflecting deconsolidation of T2CN and the addition of lower margins of Southeast Asia, and the quarter-over-quarter decrease reflecting the aforementioned revenue decrease.

Consolidated operating expenses for the second quarter decreased to $8.3 million from $19.0 million in the second quarter of 2010 and from $8.4 million in the first quarter of 2011. Operating expenses in the Asian online games in the first quarter of 2011 were $6.2 million compared to $10.3 million in the prior year period and $6.1 million in the first quarter.

Consolidated product development and engineering expenses decreased to $384 thousand in the second quarter of 2011 from $2.4 million in the prior year with the variation reflecting front-loaded expenses in the second quarter last year related to development of the SpongeBob SquarePants game title. Second-quarter 2011 results were comparable to the $370 thousand reported in the first quarter of 2011.

Consolidated selling and marketing expenses increased to $2.7 million in the first quarter from $2.3 million in 2010 and held steady compared to $2.9 million in the first quarter of 2011. The year-over-year variation resulted from A.V.A. promotions in 2011.

Consolidated general and administrative expenses were $5.2 million in the second quarter compared to $11.6 million in 2010 and $5.2 million in the first quarter of 2011, with the year-over-year comparison reflecting certain one-time expenses last year. Corporate operating expenses decreased to $1.6 million from $2.0 million quarter-over-quarter. Results were in line with management's ongoing initiatives to control costs and expenses.

Consolidated loss from operations was $3.6 million compared to $11.8 million in the second quarter of 2010 and $2.7 million in the first quarter of 2011. The quarter-over-quarter period variations reflected the aforementioned factors affecting revenues and costs and expenses. The year-over-year variations reflected these same factors and certain one-time items recorded in the second quarter of 2010.

Core loss from operations for the second quarter of 2011 was $2.8 million compared to $4.8 million in the second quarter of 2010 and $1.9 million in the first quarter of 2011. (See, the attachment to this release entitled "Reconciliations of Non-GAAP Results of Operations" for more details.)

Consolidated non-operating expenses/income during the second quarter of 2011 were expenses of $3.2 million compared to income of $70.6 million in the second quarter of 2010 that resulted largely from the sale of the gambling software business Everest Gaming in 2010, and expenses of $2.2 million recorded in the first quarter of 2011. Second-quarter 2011 results included the following: 1) an equity loss of $4.4 million reflecting GigaMedia's remaining interest in Everest Gaming, which more than offset 2) equity income of approximately $893 thousand related to GigaMedia's Asian online game operations.

Consolidated net loss for the second quarter of 2011 increased to a loss of $7.0 million from net income of $52.5 million in the second quarter of 2010 and increased from a net loss of $5.2 million in the first quarter of 2011. The period variations reflected the aforementioned factors affecting income from operations and consolidated non-operating expenses/income.

Core net loss for the first quarter of 2011 was $1.7 million compared to a core net loss of $5.4 million in the second quarter of 2010 and a core net loss of $975 thousand in the first quarter of 2011. Core basic and fully-diluted loss per share in the second quarter of 2011 were both $0.03.

Consolidated EBITDA for the second quarter of 2011 was a loss of $5.9 million compared to positive EBITDA of $59.8 million in the same period last year and a loss of $4.0 million in the first quarter of 2011. Operating cash outflow for the second quarter of 2011 dropped sharply to $415 thousand. Capital expenditures totaled $436 thousand during the second quarter of 2011.

Cash and Strategic Investments

GigaMedia continued to maintain a solid balance sheet during the second quarter. Cash, cash equivalents, restricted cash, and marketable securities-current were $70.7 million, down from $72.9 million in the first quarter of 2011. Total short-term borrowings were $13.2 million at the end of the second quarter of 2011 compared to $12.9 million for the prior quarter. The net cash decrease in the second quarter of 2011 was $2.5 million, with the decrease primarily reflecting share repurchases under the company's share buyback program.

Marketable securities - noncurrent plus investments, consisting of GigaMedia's strategic holdings in game studios, developers and other related entities and the company's remaining 40 percent interest in Everest Gaming, were $88.1 million in the second quarter, down from $103.3 million last quarter.